Income divergence and global connectivity of U.S. urban regions—Buchholz 2020

Since the 1980s, U.S. city incomes have diverged after a century of convergence, requiring new policies. We argue that policy research should include the effects of outward foreign-direct investments in addition to the effects of inter-city divergence from technological change, migration, and trade (OFDIs). This paper suggests OFDIs have contributed to city income inequality. OFDIs can positively affect average income levels in investing (home) cities through labor, knowledge, multiplier, and trade effects, a relationship not systematically studied before. Regional income levels and OFDIs co-evolve virtuously in high-income cities, but not in low-income cities. This is tested before and after the 2008/2009 financial crisis. OFDIs have a positive effect on regional income levels in the post-crisis period, but their effect is greatest for cities with incomes in the 60th to 80th percentiles. This suggests that OFDIs help already successful city-regions extend their lead.

Buchholz, M., Bathelt, H. & Cantwell, J.A. Income divergence and global connectivity of U.S. urban regions. J Int Bus Policy 3, 229–248 (2020). https://doi.org/10.1057/s42214-020-00057-7